Photo credit: Asian Development Bank
Small and medium-sized enterprises (SMEs) can be a force to reckon with in Papua New Guinea if the funds parked in the two banks, National Development Bank (NDB) Ltd and Bank South Pacific (BSP) Financial Group Ltd, by the Government are fully fulfilling the vision of the Government by reaching the wider population and are in line with the goals outlined in the Government’s SME policy.
In 2016 through the draft of the Small and Medium Enterprise Policy, the Government of Papua New Guinea positioned SMEs as a vehicle for inclusive growth, job creation and poverty reduction. A master plan was introduced at the same time to grow the number of SME business in the country in which a target of 500,000 small and medium enterprises were to be established by 2030, which is now just 7 years away.
Back in August 2020, the Papua New Guinea government announced that it would provide K200 million for loans to help small businesses struggling in the wake of the global pandemic. The money was to be split between Bank South Pacific (50%), the National Development Bank (40%) and Department of Commerce and Industry (10%) and be loaned out at a competitive rate to in-need SMEs as subsidised business loans. The first K100 million was delivered to BSP and the next grant of K80 million was later given to the NDB.
However, reports suggested in a recent business forum that there are currently about 45,000 SMEs operating in PNG, notwithstanding the recent economic slowdown. It has been generally acknowledged that a lack of financial inclusion and financial infrastructure, little or no entrepreneurial training, limited access to commercial land, markets and infrastructure are just some of the barriers people face when trying to open a new business in PNG.
So, what can be done to help create those additional SMEs to reach the Governments goal of establishing 500,000 SMEs by 2030?
Chairman of the SME Corporation, John Pora, stated that if the PNG government is to reach its stated goal of bringing 500,000 small and medium-sized enterprises (MSMEs) into existence by 2030, the Small and Medium Enterprises Corporation (SME Corp.) must have the capacity to activate around 240 new entities every day across PNG’s 22 provinces.
As the arm of the PNG government that deals with all things SME, Pora said the SME Corporation has formulated three strategies geared towards building a bridge between the government and the MSME sector.
The SME Corp. had launched a strategy document last year in September and the strategy is based on three principles: integration, communication and people, processes and performance.
However, many Papua New Guineans in the SME sector have spoken out about their grievances in the country's two dailies, saying the two banks that the SME funds are parked at to help develop local businesses are not doing much to reach the wider population.
The two banks have their own separate criteria of giving out loans to entrepreneurs in the country as one is state owned (NDB) and the other is privately owned (BSP), but it always differs on how the loans are awarded to the successful applicant as there is always a profit motive.
The SME funds should be spread out to other commercial and national micro banks operating in the country as well, apart from the two nominated banks for the wider population to have access because a lot of business enterprises don’t have equity available to them.
A leading commercial bank in the country, Kina Bank, had also unveiled its long-term plan for the development of SME in PNG even though the commercial bank was not nominated into the Government’s K200 million funding.
Chief Executive Officer Greg Pawson said Kina Bank are very encouraged by the Government’s focus on the SME sector.
“We see that as being integral to the future growth and prosperity of PNG. Kina Bank has come out with a SME loan product of up to K500,000 (secured) or K100,000 (unsecured) at four per cent interest per annum, with an extended term of up to 15 years. It goes to businesses that are turning over up to K5 million a year. We’ve allocated an initial amount of K50 million for that particular product and we’ll see how that goes.
The underlying understanding and the core purpose of these SME funds is to give meaning and add value to the lives of Papua New Guineans and impacting the nation at a larger scale. It is time the Government serves the entire population to see lives changing and moving forward and not a select group of people being served by the financial institutions the funds are being parked in.
But the government has stated otherwise. In Prime Minister James Marape's New Year speech, he stated that small and medium enterprises (SME) have been an emerging class of business in PNG, thanks in part to government policies designed to support their development, such as preferential tendering and subsidised loans.
"In Micro, Small and Medium Enterprises, the government will continue to support the growth of small businesses in the sector. This follows through from the success of 2021, where almost 600 SMEs Papua New Guineans have started out of low cost borrowings," PM Marape said.
He said that the Government will support the SMEs contribution to the country and continue to diversify its economy, which has been dependent on the extractives industry for several decades. Even when COVID-19 disrupted global economies, most SMEs in PNG remained steadfast in their growth despite the drastic challenges they faced financially.
In 2022, when the world started rebounding from the fallout of the pandemic, the support offered by the government to SMEs in PNG was instrumental in helping them get back on their feet. With new regulations, reforms and financial support aimed to create an accommodative environment, the government is transforming the SME sector into an engine for economic growth.
The growth of SMEs in 2021 was successful as the number of registered SMEs in PNG hit more than 50,000. The Government will continue to offer entrepreneurial platforms such as business incubators, business accelerators, and co-working spaces for SMEs to evolve and thrive in the market.
Through these initiatives, the Marape Government aims to successfully achieve the targets outlined in it SME policy to have 500,000 registered SMEs by 2030 which include lowering the unemployment rate, increasing women’s participation in the workforce, and expanding SME contribution to the gross domestic product (GDP) by the end of this decade.
There are still many opportunities in PNG for small business. it’s a matter of choosing the right type of business.
"At the end, you need to look at what’s needed in the local environment and understand how your business can serve that need," Marape explained.
